Monday, 23 March 2015

Although it has
being going on for months, the UK’s General Election campaign doesn’t
officially start until next week. I doubt I’ll be alone in wishing it was all
over already but just as many people seem excited by the prospect. However,
something I won’t be doing this time is giving much attention to the various political
party manifestos, the magazine-style documents the political parties publish
detailing their policy platforms. These used to offer a guide to who to vote
for but seem far less meaningful in an era of ‘pick and mix’ coalition politics.

While manifestos
have always represented the outcome of ideological horse-trading within parties
they usually contain some degree of internal policy coherence. But compromise
between parties effectively destroys this. The 2010 General Election, for
example, produced a Coalition with a programme for government that didn’t
appear in either the Conservative or Liberal Democrat party manifestos. Nobody
voted for the policy mix subsequently pursued and we’ll never know if the quickly
cobbled together package of measures has produced superior economic and social
outcomes to what would have occurred if the Conservatives had governed alone as
a minority administration. Either way, however, the possibility of another hung
Parliament and thus some kind of post-Election arrangement between one or more
parties makes it harder to take manifestos in the traditional sense at face
value.

In my view political
parties should only publish detailed manifestos if they also rule out a formal coalition
or some other informal post-electoral pact in the event of a hung Parliament. Otherwise
parties should simply issue a short statement of overall intent – akin to an
organisational mission statement – along with a clear list of red line policies
they would either not deviate from or not sign-up to following any
post-Election agreement with other parties.

Politicians who wish
to garner public trust should demonstrate that they are more interested in
policy than politics. The best way to lose trust is to stand for office on a
detailed policy agenda merely to ditch this once the votes have been counted.

Wednesday, 18 March 2015

The Office for
National Statistics (ONS) has this morning released the latest set of UK labour
market data. These mostly cover the three months November 2014 to January 2015
but also include estimates for public and private sector employment in Q4 2014.

The jobs figures
continue to be strong, with employment up 143,000 on the quarter (to a total of
30.94 million people in work) and unemployment down 102,000 (to 1.86 million).
The working age employment rate has reached a new record of 73.3%. Full-timers
account for more than two thirds of the quarterly rise in employment, all the net
rise due to more employees in employment (the number of self-employed fell by
9,000). Excluding the effect of major statistical reclassifications, the number
of people employed in the private sector increased by 148,000 to 25.64 million
in the final quarter of 2014, while the number employed in the public sector fell
by 5,000 to 5.23 million.

There was a quarterly
fall in both the unemployment rate (down from 6% to 5.7%) and the working age
inactivity rate (down from 22.3 to 22.2%). The number of people long-term
unemployed (i.e. unemployed for more than 12 months) fell by 55,000 in the
quarter (to 629,000). Youth unemployment fell by 12,000 to 743,000 in the
quarter and has now fallen below 500,000 if full-time students are excluded from
the total (the overall youth unemployment rate down from 16.6% to 16.2%). The
number of people claiming Jobseeker’s Allowance fell by 31,000 to just over 791,000 in the month to February 2015.

But the average
weekly earnings figures disappoint yet again, the rate of growth in both
average weekly total pay (down from 2.1% to 1.8%) and regular pay (i.e. excluding
bonuses, down from 1.7% to 1.6%) slowing slightly. Although pay is now growing
faster than the 0.3% rate of consumer price inflation this nonetheless dents
Chancellor of the Exchequer George Osborne’s positive Budget day narrative. Real
wages are rising only because low global oil prices, which Mr Osborne can't take credit for, are pushing the economy toward
zero inflation; in our high employment/low productivity jobs market pay packets
still aren't benefiting from the so-called ‘long-term economic plan’.

Monday, 16 March 2015

The performance of the UK labour
market since 2010 will feature in political rhetoric between the Budget day on
Wednesday 18 March and General Election polling day on May 7. With politicians
and commentators set to trade opinions on the subject, here is my brief take
viewed in the light of what I thought would happen five years ago

At the outset of the recession I
expected unemployment to rise higher than it has (to a peak of around 10%
rather than the outturn of 8.5%) but also expected a very sharp and sustained
fall (to well below the pre-crisis rate of 5.2%) once the economy returned to
above trend growth.

The projected effect of the recession
on unemployment was based on the assumption of no underlying change in the rate
of labour productivity growth and stable real wages. Unemployment only rose
less than expected because productivity and real wages at first fell and then
remained subdued during the recession and subsequent period of stagnation.

On the subsequent sharp fall in
unemployment I argued in a lecture to HR directors in March 2012 'Unemployment: the case for optimism"
that this was highly likely because the structural unemployment rate is
nowadays much lower than in previous decades (the lecture was a response to a
CBI claim at the time that the UK's structural unemployment rate was around 8%,
allied to which was a call for further labour market deregulation).

In my view the only barrier to a sharp
fall in unemployment in 2012 was the coalition's macroeconomic policy stance,
which served to stymie economic recovery in the first few years after 2010. In
the event we had to wait another year for a solid improvement in aggregate
demand and thus what I would consider a genuine jobs recovery. In terms of
trajectory, job growth was weak in 2010 and 2011 and then only very modest in
2012 and the early part of 2013. It was only from mid-2013 onward when the
economic recovery really gathered steam that we saw a very fast rate of job
growth and acceleration in the fall in unemployment. Unsurprisingly, it is also
only in this latter period that we saw the balance of job creation switch away
from part-time, temp and self-employment jobs toward full time, permanent jobs
for employees.

The conclusion I draw from this is
that had the coalition pursued a less restrictive macroeconomic course after
May 2010 the jobs recovery enjoyed since 2012 would have begun much earlier
(probably in 2011) and the labour market would by now have tightened
sufficiently to allow much stronger real wage growth. Moreover, only the
strong aggregate demand driven phase of the jobs recovery from mid-2013 onward can
be considered unalloyed good news, which means we should view put figures
related to net employment growth between 2010 and 2015 as a whole in the
perspective of what has happened to productivity and real wages over the same
period.

Although it is possible to portray
the use of more workers at lower average real wages to produce a given level of
output as good economic news, the reality is that this is a sign of underlying
economic malaise rather than strength and does not bode well for long-term
improvement in living standards.